Implications of the New Motor Insurance Premium Rates

“It is observed that the cost inflation index (CII) has increased by 5.57 percent over the previous year, i.e. from 1024 in FY 2014-15 to 1081 in FY 2015-16. Accordingly, the Authority issued an exposure draft on March 4, 2016 on revision of premium rates for motor third party insurance covers for FY 2016-17 inviting comments on the proposed rates from all stakeholders concerned.” – IRDA

What is the new motor insurance premium hike about?The Insurance Regulatory and Development Authority of India has increased the third party premiums by 10%-65% across private and commercial vehicles. It has also agreed to the demand of reviewing third party premium rates annually. This increase has come after a period of five years. The IRDA had in its circular on April 15, 2011 had emphasized on the need to regularly review the third party rates because of the changing needs of the industry.

Specifics of the above development:Third party premium rates for small cars (up to 1000 cc) will be up by 39.9%. That of middle segment cars (1000cc-1500cc) will be up by another 40%. And those like SUVs with an engine above 1500 cc have seen an increase of 25%. Two wheeler vehicles (up to 75 cc) have to pay an increased premium of Rs. 569 as against Rs. 519. For two wheelers falling in the category between 75 cc and 150 cc have to deal with a hike of almost 15% and those under 150 cc to 350 cc category have had a 25% hike.

There has been an introduction of the category ‘e-rickshaw’ (passenger capacity: 6). The basic third party rates for three-wheelers have also been increased. The premium rise in case of public carriers has been between 15% and 35%.

What does all this mean in the layman’s language?It means that owning a motor vehicle in India has become more expensive now. So, if you own a small car and you pay a premium of Rs. 15000 – where 90% is own damage cover and 10% is third party cover; then, you’ll now have to pay approximately 40% more of the 10% of 15000 i.e. about Rs. 600 more.

The insurance industry has been constantly demanding this increase in premiums. In fact, they cite that an ideal increase would have been that of about 80%. But with the decision to annually review the third party insurance premium that may just be coming.

Somebody who plans to purchase a car or already possesses one should definitely acquire knowledge of motor insurance and the constant changes in its tariff structure.

What are the different motor insurance schemes available?The following are the few types of motor insurance schemes generally available:

1. Liability cover: In the above example of crashing your car due to your own actions – you will need liability cover. In other words, liability insurance will cover cost of repair of the vehicle, medical bills, repairing any property damaged by an accident caused due to the actions of the insurer.

2. Collision Coverage: If there is a covered accident, collision coverage will pay for the repairs to your car. If your car is totaled (where the cost to repair it exceeds the value of the vehicle) in an accident, collision coverage will pay the value of your car.

3. Comprehensive Coverage: What if something happens to your car that is unrelated to a covered accident - weather damage, you hit a deer, your car is stolen - will your insurance company cover the loss? Liability insurance and collision coverage cover accidents, but not these situations. These situations are covered by Comprehensive (other than Collision) coverage.

4. Personal Injury Protection: The costs associated from an accident can quickly add up, and in order to cover those costs Personal Injury Protection is available. With this coverage, your medical bills along with those of your passengers will be paid, no matter who is at fault for an accident.

How important is this sector in the Indian insurance scenario?The motor insurance sector is one of the major premium sources. It has a size of around 35000 crore Rupees. According to Insurance Regulatory and Development Authority of India,motor insurance in India accounted for 39.41 per cent of the gross direct premiums earned in FY16, at US$ 1.01 billion till September 2015.

The Insurance sector in India is constantly evolving with a need there to continuously adapt and change existing rules. Motor Insurance is no different from any other form of insurance and requires time and again. The IRDA of India recently hiked the motor insurance premium. Read on to know more about it.

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